A barrel of Brent crude could cost less than a cup of coffee before long as fears about dwindling storage space sink in, an analyst has said.
Bjornar Tonhaugen, head of oil markets at Rystad Energy, said it was time to “throw old perceptions of physical laws to the side and be prepared for more surprises in this broken oil market”.
Mr Tonhaugen said storage space could run out next month — even with Opec+ production cuts being implemented on May 1 — as demand remains low.
He warned that Brent may drop to unprecedented lows unless further production cuts are announced to alleviate the issue.
“Unless there is a massive shock, like millions of barrels per day in new shut-ins or new production curbs that will handicap the oil supply tornado, or decisions by countries around the world to open up sooner and increase demand, don’t be surprised if a barrel of oil gets cheaper than a latte in a while,” he said.
Brent futures fell 15% to around $16 per barrel earlier today, their lowest level in about two decades, before recovering slightly to sit at $19.09 per barrel at 11:25am.
WTI, which fell deep into negative territory on Monday night, hitting minus $40 at one point amid storage fears, is currently at $11.26 per barrel.
Mr Tonhaugen said Brent had “succumbed to further spillover pressure from the WTI collapse”.
He said: “The oil storage shortage problem is real and the delayed reaction to it is the reason markets are in panic during the last days, suppressing prices across WTI and Brent.
“In the past weeks, the market had Opec+ and G20 meetings to hold onto, Tweets that would help enthusiasm spread and build hopes for a strong reaction to the crisis. Now traders have exhausted their ‘hope storage’ and have nothing else to count on.
“The next Opec+ meeting is in June if further cuts in the group are to be announced and countries outside the alliance are not promising cuts to the extent the market expected so far.”